Since you are entering the cost of the rental property on the most recent date you placed it into service, the "purchase price" would actually be the total of the depreciated basis ($45K - $27K) plus the renovations ($255K). You will enter only one rental asset for depreciation.
Note that the property was no longer considered a rental during the period when you had no tenants paying fair market rent. Instead, it became personal property.
According to IRS Pub 551 Property Changed to Business or Rental Use:
If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. An example of changing property held for personal use to business use would be renting out your former main home.
The basis for depreciation is the lesser of the following amounts.
- The Fair Market Value of the property on the date of the change, or
- Your adjusted basis on the date of the change.
The best source for the Fair Market Value (FMV) on the date of the change would be a local real estate agent who can provide comparable sales. This is good evidence for the value of your home on that date.
As stated above, your adjusted basis is the original purchase price plus any improvements (upgrades or additions) that you have made. In most cases, your adjusted basis would be less than the FMV, so that is the basis you would use for your Rental Property.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
